Chronically low growth, an exodus of foreign stock investors and signs of slowing exports are casting dark clouds over the Korean economy.
The Bank of Korea on Thursday said the economy grew just 0.6 percent in the third quarter, the lowest in nine years. Compared to same period of 2017, the economy grew two percent.
Weak investments were mainly to blame. Construction investment plunged 6.4 percent, the biggest decline since the Asian financial crisis in 1998. Facilities investment also dropped 4.7 percent.
Exports grew 3.9 percent, but that was only thanks to strong demand for semiconductors, while overall export growth was drastically lower than the 5.6-percent increase in the third quarter of last year.
Dealers watch monitors in the trading room of KEB Hana Bank headquarters in Seoul on Thursday. /Newsis
Global investment banks slashed their growth estimates for Korea next year as soon as the third-quarter figures were announced. Citibank lowered its outlook from 2.6 to 2.5 percent, and Nomura from 2.7 to 2.5 percent. Citibank said rising labor costs compounded by declining semiconductor prices and downsizing in the car and shipbuilding industries are having a negative impact.
Foreign investors have started to take their cash out of the Korean market as interest rates lag behind the U.S. The Korea Composite Stock Price Index closed down another 1.62 percent on Thursday at 2,063.55 points.
Investor sentiment was hit after U.S. IT stocks including Apple and Amazon tumbled overnight, causing the Nasdaq to plunge 4.43 percent, while foreign investors continued to dump Korean stocks. So far this month, foreign investors have sold W4.2 trillion worth of Korean stocks (US$1=W1,138).
The intensifying trade war between the U.S. and China could have a huge impact on the Korean economy, which is heavily dependent on both countries for exports.
Nouriel Roubini, an American economist who predicted the 2008 global financial crisis, has warned of a "perfect storm" ahead as various negative factors converged over the last two years.
Yun Chang-hyun at the University of Seoul said, "The economy is being hit by both internal and external uncertainties and has reached a state where boosting jobs by hiring 59,000 part-time workers won't do the trick. We need to go back to the drawing board and make bold economic reforms."